Executives can’t control the fluctuating economy, rising cost of raw materials or shifting customer preferences. But savvy leaders are taking control of a key business cost — energy — by choosing an energy supplier, selecting a product structure to support their business needs and eliminating financial uncertainty by negotiating long-term energy supply contracts that provide them the price and product structure that meets their needs.
Reducing energy costs by even a small percentage can create a hefty competitive advantage. According to a 2011 report by Aberdeen Research, energy costs make up 25 percent of total operational costs in large U.S. plants, and IBM says that office buildings account for 70 percent of U.S. energy use. The authors note that managing energy costs is a top priority for 68 percent of business executives, and while the top-performing companies are exceeding their goals by 20 percent, the laggards are falling short by almost 11 percent.
“In Pennsylvania, it’s hard for executives to control operating costs if they purchase energy from their regulated utility because their default service prices, in many cases, change every 90 days,” says Annette Durnack, director of Retail Energy for PPL EnergyPlus. “Pennsylvania companies that purchase their energy from a competitive supplier can lock in rates for a term that meets their needs and select from a variety of cost-reducing products, rather than only one product offered by the utility.”
Smart Business spoke with Durnack about how to create a competitive advantage by choosing an energy supplier and complementary product structure.
Why should businesses be thinking about their energy supply?
Energy costs are a significant portion of total business costs for many companies. In Pennsylvania, businesses are not at the mercy of regulated utility rates. Opportunities abound to reap savings by choosing an energy supplier in the competitive market and to realize additional savings by requesting quotes now because prices have dropped 25 percent since the market peaked in 2009.
In addition, businesses choosing a competitive supplier can benefit from a customized slate of products and services that support their business plan. For example, if a company wants to woo new customers by launching a green initiative, it could partner with a supplier that offers renewable energy sources and agree to purchase a portion of its supply from a renewable component. Or if a customer needs to lock in the price of the product they produce for three years and energy is a big part of that cost, locking in an energy supply price can help achieve that objective.
When is the best time to buy energy?
The spring and fall months are traditionally the best time to buy because prices drop as demand ebbs. Beyond optimizing seasonal price differences, companies can garner additional savings by choosing an energy supplier in the competitive market. Companies that don’t choose a supplier will see energy rates fluctuate because regulated utilities change their rates for default service — the service you get if you don’t select a competitive supplier — every three months.
In turn, businesses may have to raise prices for goods and services, which can impact customer loyalty, revenue and margins, and create a climate of financial uncertainty. Companies that partner with a competitive supplier enjoy a competitive advantage because they can contractually lock in prices for 12, 24, 36 months or longer, and choose a product structure to meet their unique business needs.
What products and services can providers offer beyond energy supply?
A competitive supplier can offer renewable energy options that help businesses reduce their carbon footprint, run a green operation and market their environmental stewardship to the community. Some providers also offer companies the opportunity to earn revenue or credits by participating in demand response programs if they are willing to curtail consumption when high electricity use strains the power grid. Companies can select a demand response product that best suits their needs and earn consistent, predictable revenue, even if an energy curtailment event never materializes. Some providers also offer weekly market updates so companies can stay on top of trends in the energy market, request quotes and time their energy purchases to capitalize on falling energy prices.
How can a demand response option benefit businesses?
Companies know the prices they’ll be charged and the discounts they’ll receive when they sign a long-term contract with a supplier and select an appropriate demand response program. And because energy costs make up a significant portion of a company’s operating budget, long-term contract pricing allows them to confidently forecast future expenses and bolster revenue by consummating multiyear deals with their customers. Not every state has a competitive electricity market, so companies that take advantage of Pennsylvania’s open market and demand response programs can get a leg up on the competition.
What are the advantages of bundling energy supply and energy services?
Buying bundled services provides the convenience of one-stop shopping and the opportunity to negotiate an advantageous deal by leveraging your total energy expenditures and purchasing power. Partnering with a supplier offers additional benefits, as a partner is more likely to build a relationship, understand your business plan and challenges, and then recommend a customized slate of services and products that will help your company compete. And an energy partner will help your business tailor your energy purchases to best meet your individual needs.
PPL EnergyPlus, LLC is an unregulated subsidiary of PPL Corporation. PPL EnergyPlus is not the same company as PPL Electric Utilities. The prices of PPL EnergyPlus are not regulated by the Pennsylvania Public Utility Commission. You do not have to buy PPL EnergyPlus electricity or other products in order to receive the same quality regulated services from PPL Electric Utilities.
Annette Durnack is director of Retail Energy for PPL EnergyPlus. Reach her at AMDurncack@pplweb.com or (610) 774-3182.